Brief Fact Summary. American Oil Co., (Plaintiff) brought an action for declaratory judgment against Weaver (Defendant), to determine Defendant’s liability under a “hold harmless” clause in the lease. The trial court held the Defendant liable, however the appellate court held the exculpatory clause of the “hold harmless” clause invalid and the indemnifying clause valid.
Synopsis of Rule of Law. A contract is unconscionable on the grounds that it is contrary to public policy when the stronger party has greater bargaining power than the lesser party and it is used to the stronger party’s advantage and unknown to the lesser party, causing that party great hardship and risk.
When a party can show that the contract, which is sought to be enforced, was in fact an unconscionable one, due to a prodigious amount of bargaining power on behalf of the stronger party, which is used to the stronger party's advantage and is unknown to the lesser party, causing a great hardship and risk on the lesser party, the contract provision, or the contract as a whole, if the provision is not separable, should not be enforceable on the grounds that the provision is contrary to public policy.View Full Point of Law
Issue. Whether the contract provisions were unconscionable?
Held. Yes. Judgment of trial court is reversed with direction to enter judgment for the appellant.
A contract can be unenforceable if a party can show that the contract which is sought to be enforced is unconscionable due to a profuse amount of bargaining power on behalf of the stronger party, which is used to the stronger party’s advantage and is unknown to the lesser party, causing a great hardship and risk on the lesser party, the contract provision, or the contract as a whole, if the provision is not separable, should not be enforceable on the grounds that the provision is contrary to public policy. The burden is on the party seeking to enforce the contract and has the burden of showing that the provisions were explained to the other party and came to his knowledge and there was a real and voluntary meeting of the minds and not an objective meeting.
According to the facts, the Defendant was uneducated and was not one who should be expected to know the law or understand technical terms. When the lease was signed Plaintiff presented it to Defendant and said sign it. Nothing indicated that Defendant read the lease or that the “hold harmless” clause was pointed out to the Defendant. Every year thereafter there continued to be no evidence that Defendant read the lease prior to signing and that the clauses in the leases were ever explained to the appellant. The great bargaining power of the Plaintiff is obvious and it was clearly used against the Defendant.
Furthermore, the hardship and risk of enforcing the contract on the Defendant is great. If the contract was enforced it would cost the Defendant thousands of dollars in damages for negligence that he did not cause. The clause in the contract was also in fine print and there was no title heading which could have identified it as an indemnity clause, thus it appears that appellant was not aware of this provision.
Discussion. The court here stresses that they have not held that parties may not make contracts exculpating one from negligence and providing for indemnification if it was done knowingly and willingly.